Clash of the titans
The weakness of the US based car manufacturers was displayed when Toyota overtook GM the world's top car seller earlier this year. GM has not been giving up and noted higher sales attributed to its strong presence in Latin America and Asia. Meanwhile, it seems that customers in North America seem to associate Toyota with high quality and fuel efficiency (and rightly so), making up for the weaker sales on its domestic market. Toyota is expected to beat GM in annual sales for 2007. GM has to either take away Toyota's competitive advantages (superior quality etc.), or refocus their own core competencies (more on this story: http://online.wsj.com/article/SB118491895284472882.html?mod=home_whats_news_us ).
Dow 14000
Yesterday, DJIA broke yet another thousand of points, springing doubts that it is just too high...
The importance of expectations
... and promptly fell 150 points today, as blue chips were releasing disappointing Q2 earnings data. Google's shares went down 5.2% despite quarterly profit grow of 28%, Microsoft also fell despite growing profit... just shows once again, that the markets expectations are the most important (See: http://online.wsj.com/article/SB118493115406772925.html?mod=home_whats_news_us ).
Friday, July 20, 2007
Bits & Pieces
Wednesday, June 20, 2007
Fighting for a piece of the pie...
Blackstone's upcoming IPO has received a lot of media attention last and this week. Part of the reason is executive compensation package, totaling a multi-billion dollar figure (More on the distribution of Blackstone IPO proceeds: http://online.wsj.com/article/SB118156915112631131.html).
This whooping sum is characteristic for the private equity sector, which is the place to be nowadays - lots and lots of money can be made " by amassing investments from pension funds, endowments and wealthy individuals -- then buying up companies, turning them around and reselling them" (The WSJ on the private equity firms, http://online.wsj.com/article/SB118156915112631131.html). The attitude of business schools supports the notion of the private equity sector's popularity. The best business schools in the country create classes and specializations focusing on private equity, try to attract people with industry experience, as well as guest speakers and professors from the sector (See: http://online.wsj.com/article/SB118160869757131959.html).
It is all an understandable process; however, others might want a piece of the same pie. The hedge funds and private equity firms which are publicly traded and are limited liability partnerships have enjoyed lower tax rates than entities formed as corporations. However, the government tries to get more from their profits: "Wall Street's new masters of the universe, hedge funds and private-equity partnerships, are suddenly finding the universe a less-hospitable place.The latest pressure arose this week when the Senate Finance Committee decided to introduce a bill to tax financial-services partnerships that are publicly traded, as giant Blackstone Group soon will be, at the same higher rate paid by corporations." (From: http://online.wsj.com/article/SB118195651141637425-search.html?KEYWORDS=private+equity+taxation&COLLECTION=wsjie/6month More on the issue at: http://online.wsj.com/article/SB118185483791435821-search.html?KEYWORDS=private+equity+taxing&COLLECTION=wsjie/6month). The Wall Street Journal also notes, that lawmakers in Britain have similar intentions as the American ones: "Private Equity's Tax Breaks GetHard Look on Both Sides of Pond " (Read the whole article at: http://online.wsj.com/article/SB118212440211838480-search.html?KEYWORDS=private+equity+taxing&COLLECTION=wsjie/6month). The attitude is clear - private equity firms enjoy a real boom of their sector, as well as the advantages given by being publicly traded, without what is felt as fair rate of taxation imposed on them. Regardless whether it is the case, or the buyout firms just do not have enough lobbying power (See: http://online.wsj.com/article/SB118212767498638611-search.html?KEYWORDS=private+equity+taxing&COLLECTION=wsjie/6month), it is clear that in the end it is just about a greater cut of the big and growing private equity pie.
Monday, June 18, 2007
High risk loans - financial salvation, or another slump approaching?
Not all business entities enjoy a successful start up period, as many new business projects fail. Apart from that a lot of the established companies run into trouble, for a number of reasons including erosion of customer base, bad investments, a down turn in a given industry and many more.
The bankruptcy legislation in the USA is quite lenient in comparison with other developed countries. This is the main reason for a large number of post-bankruptcy emergences in America. The airline sector can serve as a great example - companies disappear and returns, the latest examples being Delta and Northwest (See: http://online.wsj.com/article/SB117792554117386751-search.html?KEYWORDS=bankruptcy+emergence&COLLECTION=wsjie/6month . Still, the whole process associated with seeking Chapter 11 protection is painful for the management, employees, creditors and stockholders. To put it clear or even blatantly - every one tries to avoid if possible. What can financially troubled firms do then?
There's a lot out there...
"In a world awash in investable funds, even many of the most troubled companies are finding lenders willing to offer them big money. This rescue financing, as it's sometimes called, can give companies time to clean up their balance sheets and avoid a trip to bankruptcy court. U.S. filings for bankruptcy reorganization -- a painful experience for employees, creditors and shareholders alike -- are at a 10-year low. Also at historic lows are U.S. corporations' debt defaults." (From: http://online.wsj.com/article/SB118161526044432160.html).
Seems like the perfect deal - troubled companies get the time and means to turnaround their business, and lenders, mostly investment banks and hedge funds, get a nice risk premium on the loans amounting to a couple percent over the LIBOR rate. The whole process is so easy because "There's a lot of money out there" (From: http://online.wsj.com/article/SB118161526044432160.html). As mentioned above - corporate bankruptcies are at decade low. Everything seems perfect, does it not?
Shaky grounds
"When rescue lending fails, the extra debt can make a bust just more spectacular" (See: http://online.wsj.com/article/SB118161526044432160.html). The head of restructuring and recapitalization at the investment bank Jeffries & Co puts it this way in a quote for the Wall Street Journal: "To quote Alan Greenspan, there's some irrational exuberance on the part of investors." (From: http://online.wsj.com/article/SB118161526044432160.html).
Seems like the investors did not learn much on the rise and fall of junk bonds in the 1980', or the recent sub-prime mortgage sector failure (An interesting view on that: http://online.wsj.com/article/SB118212541231038534-search.html?KEYWORDS=bankruptcy+emergence&COLLECTION=wsjie/6month). A rational investor has to remember to asses the risk of an investment and measure the benefits on the risk adjusted basis. Private equity firms, as well as investment banks or hedge funds may have a lot of capital, which does not mean they should just throw it away! Hopefully, rescue financing will stay a useful investment/financing tool and not a symbol of the next big slump.
The bankruptcy legislation in the USA is quite lenient in comparison with other developed countries. This is the main reason for a large number of post-bankruptcy emergences in America. The airline sector can serve as a great example - companies disappear and returns, the latest examples being Delta and Northwest (See: http://online.wsj.com/article/SB117792554117386751-search.html?KEYWORDS=bankruptcy+emergence&COLLECTION=wsjie/6month . Still, the whole process associated with seeking Chapter 11 protection is painful for the management, employees, creditors and stockholders. To put it clear or even blatantly - every one tries to avoid if possible. What can financially troubled firms do then?
There's a lot out there...
"In a world awash in investable funds, even many of the most troubled companies are finding lenders willing to offer them big money. This rescue financing, as it's sometimes called, can give companies time to clean up their balance sheets and avoid a trip to bankruptcy court. U.S. filings for bankruptcy reorganization -- a painful experience for employees, creditors and shareholders alike -- are at a 10-year low. Also at historic lows are U.S. corporations' debt defaults." (From: http://online.wsj.com/article/SB118161526044432160.html).
Seems like the perfect deal - troubled companies get the time and means to turnaround their business, and lenders, mostly investment banks and hedge funds, get a nice risk premium on the loans amounting to a couple percent over the LIBOR rate. The whole process is so easy because "There's a lot of money out there" (From: http://online.wsj.com/article/SB118161526044432160.html). As mentioned above - corporate bankruptcies are at decade low. Everything seems perfect, does it not?
Shaky grounds
"When rescue lending fails, the extra debt can make a bust just more spectacular" (See: http://online.wsj.com/article/SB118161526044432160.html). The head of restructuring and recapitalization at the investment bank Jeffries & Co puts it this way in a quote for the Wall Street Journal: "To quote Alan Greenspan, there's some irrational exuberance on the part of investors." (From: http://online.wsj.com/article/SB118161526044432160.html).
Seems like the investors did not learn much on the rise and fall of junk bonds in the 1980', or the recent sub-prime mortgage sector failure (An interesting view on that: http://online.wsj.com/article/SB118212541231038534-search.html?KEYWORDS=bankruptcy+emergence&COLLECTION=wsjie/6month). A rational investor has to remember to asses the risk of an investment and measure the benefits on the risk adjusted basis. Private equity firms, as well as investment banks or hedge funds may have a lot of capital, which does not mean they should just throw it away! Hopefully, rescue financing will stay a useful investment/financing tool and not a symbol of the next big slump.
Notice
My blog has not been updated in the last couple of weeks. There is a number of reasons for that, mainly the fact of being overseas for most of this time. However, this should change now.
Wednesday, April 25, 2007
The letter C...
Standing for: "consolidation". This word is very important in the banking sector nowadays, as it has became a more and more global industry. Banks branch internationally and they face stiffer and stiffer competition both in their respective and domestic markets.
The European banks are in an unfortunate situation that they are being exposed to competition of US and Japanese based banks, from the biggest bank in the world - CitiGroup's CitiBank, through other banking giants from these two countries.
The European way to fight back was and still is consolidation - fewer bigger banks have a greater chance of successfully competing with oversea rivals. Companies such as Deutsche Bank, Banco Santander, Royal Bank of Scotland have been pursuing this strategy. If a bank is not strong enough to overtake its competitors, than becoming and attractive acquisition target, and in turn achieving a big payoff for its stockholders becomes essential.
ABN Amro, one of the three biggest banks in the Netherlands is a well capitalized, efficient financial institution operating business units on 5 different continents (For more information see: ABN Amro reports http://www.abnamro.com/com/about/reports.jsp ). There has been some attention in the media about the possibility of ABN acquiring some other European bank. As it turned out however ABN was an acquisition target itself.
The British Barclay's Bank offered 90 billion $ for taking over ABN, but another bid emerged suddenly. Fortis Bank NV, Banco Santander and Royal Bank of Scotland are trying to conduct a hostile take-over of ABN, worth over 100 billion $. The extraordinary thing here is not only the rarity of hostile take over in the banking industry, but the value of the deal making it the biggest in the banking industry history (More on that: http://online.wsj.com/article/SB117748527305881826.html?mod=home_whats_news_us ).
Because of the magnitude of the deal and the power of the involved parties this is turning out to be very interesting. One thing that is pretty certain - ABN stockholders will receive a handsome payoff and one of the parties involved will leave the table empty handed.
***
DJIA does it again!
The Dow has done it again. The Dow Jones Industrial Average has surpassed the 13,000 point mark, achieving a new all time high (See: http://online.wsj.com/article/SB117750071157281919.html?mod=home_whats_news_us ).
The European banks are in an unfortunate situation that they are being exposed to competition of US and Japanese based banks, from the biggest bank in the world - CitiGroup's CitiBank, through other banking giants from these two countries.
The European way to fight back was and still is consolidation - fewer bigger banks have a greater chance of successfully competing with oversea rivals. Companies such as Deutsche Bank, Banco Santander, Royal Bank of Scotland have been pursuing this strategy. If a bank is not strong enough to overtake its competitors, than becoming and attractive acquisition target, and in turn achieving a big payoff for its stockholders becomes essential.
ABN Amro, one of the three biggest banks in the Netherlands is a well capitalized, efficient financial institution operating business units on 5 different continents (For more information see: ABN Amro reports http://www.abnamro.com/com/about/reports.jsp ). There has been some attention in the media about the possibility of ABN acquiring some other European bank. As it turned out however ABN was an acquisition target itself.
The British Barclay's Bank offered 90 billion $ for taking over ABN, but another bid emerged suddenly. Fortis Bank NV, Banco Santander and Royal Bank of Scotland are trying to conduct a hostile take-over of ABN, worth over 100 billion $. The extraordinary thing here is not only the rarity of hostile take over in the banking industry, but the value of the deal making it the biggest in the banking industry history (More on that: http://online.wsj.com/article/SB117748527305881826.html?mod=home_whats_news_us ).
Because of the magnitude of the deal and the power of the involved parties this is turning out to be very interesting. One thing that is pretty certain - ABN stockholders will receive a handsome payoff and one of the parties involved will leave the table empty handed.
***
DJIA does it again!
The Dow has done it again. The Dow Jones Industrial Average has surpassed the 13,000 point mark, achieving a new all time high (See: http://online.wsj.com/article/SB117750071157281919.html?mod=home_whats_news_us ).
More on that in the upcoming posts...
Thursday, April 12, 2007
Employee rights & responsibilities...
The modern society assigns a number of roles to people. A very important one is the role of an employee. Work constitutes a significant part of the adult life of most humans. It is natural that certain rights and responsibilities come with it.
I would like to comment on a part of Prof. Joseph DesJardins’* book “An Introduction to Business Ethics”. Chapters 5 and 6 of this work analyze employee rights and responsibilities respectively. The focus is on the ethical, not the legal/contractual framework.
Employee rights
First the author discusses the concept of a right to work and its meaning and extent. Later on, the ideas of employment at will and due rights are being contrasted against each other. The chapter also asks about the extent of employee participation rights.
In my opinion an employee does not have the right to get job he or she would like to obtain, but only those that correspond their skills and abilities. Whereas the inequality of power and means makes a good case for justifying the concept of due rights, it does just the contrary for the idea of participation. Corporations are not democratic institutions and they need hierarchy to be economically viable. An employee cannot expect same decision-making rights as the agent appointed by the owner of the corporation.
I acknowledge that in an optimal situation an employee gets both extrinsic (salary, benefits etc.) and intrinsic (job satisfaction, sense of fulfillment etc.) compensation from his or hers employment. It is clear to me that in exchange for that, employees should adhere to certain employer rules, which might sacrifice some of the employee privacy. The corporations have a goal to achieve a profit and an implicit obligation to act for the good of their employees. If this means screening for people abusing illegal substances or alcohol it just serves the greater good of all employees and the business entity itself.
Employee responsibilities
DesJardins opens this chapter covering employee responsibilities with a case study about Enron, which discusses the behavior of various Enron agents’ right before and during the fall of the energy-trading giant.
The principles of the agent theory are discussed subsequently. Employees are defined as agent hired by the principal (employer) to fulfill certain of the principal goals. The author makes a crucial distinction between regular employees and managers. It is pointed out that the manager’s expertise and the resulting information asymmetry in favor of the agent may result in abusing of the trust of the employer and lead to the question what is the extent of employee responsibilities.
Furthermore, the role and responsibilities of certain established professions which are holding particular social importance, or even the gatekeeper function, are discussed. Joseph DesJardins also writes about managerial responsibility and the conflicts of interests between managers’ goals and organizational goals are presented next. The author does a very good job in contrasting the Enron executives selling of their shares versus the employees that they have deliberately misinformed. That leads to the section employee loyalty, which presents a view point that employees should not have the moral obligation to be loyal to the company. This made me ask myself the question – if the employees do not have such a responsibility, does this mean, the company does not need to be loyal towards its employees and how does it affect the agents’ rights’?
The chapter is concluded with questions about responsibilities of employees towards outside parties. Such issues as honesty, whistleblowing and insider trading are mentioned.
The conclusion I have reached after analyzing the mentioned above readings is that employees have certain moral obligations towards their employers, as well as certain rights. If the organization is hurting the employee’s autonomy or dignity by deceit or any other kind of abuse, the right of the employee to be treated ethically overrides the possible loyalty. Another aspect of these responsibilities is that agent may feel compelled to have responsibilities towards third parties, or the society as a whole and in certain cases they might be more important than the employee responsibilities towards their principals.
I do not agree with Prof. DesJardins at certain points in his book, but it provides an inresting material for analysis. Sometimes I feel that the ethical aspect of an issue such as employee rights/responsibilities is overlooked…
I would like to comment on a part of Prof. Joseph DesJardins’* book “An Introduction to Business Ethics”. Chapters 5 and 6 of this work analyze employee rights and responsibilities respectively. The focus is on the ethical, not the legal/contractual framework.
Employee rights
First the author discusses the concept of a right to work and its meaning and extent. Later on, the ideas of employment at will and due rights are being contrasted against each other. The chapter also asks about the extent of employee participation rights.
In my opinion an employee does not have the right to get job he or she would like to obtain, but only those that correspond their skills and abilities. Whereas the inequality of power and means makes a good case for justifying the concept of due rights, it does just the contrary for the idea of participation. Corporations are not democratic institutions and they need hierarchy to be economically viable. An employee cannot expect same decision-making rights as the agent appointed by the owner of the corporation.
I acknowledge that in an optimal situation an employee gets both extrinsic (salary, benefits etc.) and intrinsic (job satisfaction, sense of fulfillment etc.) compensation from his or hers employment. It is clear to me that in exchange for that, employees should adhere to certain employer rules, which might sacrifice some of the employee privacy. The corporations have a goal to achieve a profit and an implicit obligation to act for the good of their employees. If this means screening for people abusing illegal substances or alcohol it just serves the greater good of all employees and the business entity itself.
Employee responsibilities
DesJardins opens this chapter covering employee responsibilities with a case study about Enron, which discusses the behavior of various Enron agents’ right before and during the fall of the energy-trading giant.
The principles of the agent theory are discussed subsequently. Employees are defined as agent hired by the principal (employer) to fulfill certain of the principal goals. The author makes a crucial distinction between regular employees and managers. It is pointed out that the manager’s expertise and the resulting information asymmetry in favor of the agent may result in abusing of the trust of the employer and lead to the question what is the extent of employee responsibilities.
Furthermore, the role and responsibilities of certain established professions which are holding particular social importance, or even the gatekeeper function, are discussed. Joseph DesJardins also writes about managerial responsibility and the conflicts of interests between managers’ goals and organizational goals are presented next. The author does a very good job in contrasting the Enron executives selling of their shares versus the employees that they have deliberately misinformed. That leads to the section employee loyalty, which presents a view point that employees should not have the moral obligation to be loyal to the company. This made me ask myself the question – if the employees do not have such a responsibility, does this mean, the company does not need to be loyal towards its employees and how does it affect the agents’ rights’?
The chapter is concluded with questions about responsibilities of employees towards outside parties. Such issues as honesty, whistleblowing and insider trading are mentioned.
The conclusion I have reached after analyzing the mentioned above readings is that employees have certain moral obligations towards their employers, as well as certain rights. If the organization is hurting the employee’s autonomy or dignity by deceit or any other kind of abuse, the right of the employee to be treated ethically overrides the possible loyalty. Another aspect of these responsibilities is that agent may feel compelled to have responsibilities towards third parties, or the society as a whole and in certain cases they might be more important than the employee responsibilities towards their principals.
I do not agree with Prof. DesJardins at certain points in his book, but it provides an inresting material for analysis. Sometimes I feel that the ethical aspect of an issue such as employee rights/responsibilities is overlooked…
* - Joseph DesJardins An Introduction To Business Ethics, McGraw Hill, second edition, 2006
Monday, March 26, 2007
Do you want to earn big? You have got to think small...
Why is small better?
Small stocks are being viewed as an attractive investment. An article in the Wall Street Journal discussing this trend starts in the following way: "International investors are starting to think smaller. They should have started earlier" (From: http://online.wsj.com/article/SB117486630727948482-search.html?KEYWORDS=karmin&COLLECTION=wsjie/6month).
However there are some major concerns present in the common perception of small stocks. Small capitalization securities tend to be more volatile and hence more risky. Less data is provided for such companies, due both to the fact that smaller companies cannot produce a given level of financial data, as well as, because they seem to be out the focus of most analysts. Do the given above reasons determine that small stocks are not as valuable as an investment option? Not necessarily...
TINSTAAFL... or is there?
The acronym above means, "There is no such thing as a free lunch", and is widely used in economics and finance literature. In finance, this statement applies to the fact that an investor has to bear additional risk in order to achieve a higher return rate.
Surprisingly, small stocks seem to defy this rule and provide "a free lunch" on a regular basis. Historically, small stocks have brought higher returns than big stocks. The Wall Street Journal states: "Small and midsize stocks in Europe, Japan and other corners of the developed world have offered some of the best earnings growth anywhere in recent years. These stocks returned 25% a year, on average, for the five years through December, according to Morgan Stanley Capital International. Like U.S. small-capitalization stocks, small-cap foreign stocks outperformed large-cap foreign stocks for each of the past six years. Up 7% year-to-date, foreign small stocks are ahead again this year." (From: http://online.wsj.com/article/SB117486630727948482-search.html?KEYWORDS=karmin&COLLECTION=wsjie/6month). Analyzing any kind of historical market data should lead to the same conclusion.
This characteristic might be explained by a greater risk present while investing in small caps. However, financial research and empirical evidence seems to prove that, as Robert Strong, CFA puts it, small stocks provide a higher risk adjusted rate of return. Additionally, this outcome seems to be persistent. (See: Strong, R., Portfolio Construction, Management & Protection, 4 edition, Thompson Southwestern, 2006, p.249.). This is commonly known as: "small firm effect - The tendency for firms with low levels of capitalization to perform better than finance theory suggests they should". (From: http://websites.swlearning.com/cgi-wadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324232586&discipline_number=414 ). Known financial researchers, Prof. Eugene Fama and Prof. Kenneth French have researched the topic in detail, one should turn to their work for further information about it.
International diversification allows achieving a level of risk, which is approximately the half of the risk borne in a well-diversified domestic stock portfolio. Well established capital markets in Europe and Japan exhibit a similar form of market efficiency as the US markets, furthermore they do know carry excess volatility of emerging markets. Investing in small caps in developed international markets seems to be a very attractive option, carrying moderate risk and a premium risk adjusted rate of return on average, when compared with the large caps. That just brings an annoying thought that the US investors should have thought about foreign small caps earlier...
Small stocks are being viewed as an attractive investment. An article in the Wall Street Journal discussing this trend starts in the following way: "International investors are starting to think smaller. They should have started earlier" (From: http://online.wsj.com/article/SB117486630727948482-search.html?KEYWORDS=karmin&COLLECTION=wsjie/6month).
However there are some major concerns present in the common perception of small stocks. Small capitalization securities tend to be more volatile and hence more risky. Less data is provided for such companies, due both to the fact that smaller companies cannot produce a given level of financial data, as well as, because they seem to be out the focus of most analysts. Do the given above reasons determine that small stocks are not as valuable as an investment option? Not necessarily...
TINSTAAFL... or is there?
The acronym above means, "There is no such thing as a free lunch", and is widely used in economics and finance literature. In finance, this statement applies to the fact that an investor has to bear additional risk in order to achieve a higher return rate.
Surprisingly, small stocks seem to defy this rule and provide "a free lunch" on a regular basis. Historically, small stocks have brought higher returns than big stocks. The Wall Street Journal states: "Small and midsize stocks in Europe, Japan and other corners of the developed world have offered some of the best earnings growth anywhere in recent years. These stocks returned 25% a year, on average, for the five years through December, according to Morgan Stanley Capital International. Like U.S. small-capitalization stocks, small-cap foreign stocks outperformed large-cap foreign stocks for each of the past six years. Up 7% year-to-date, foreign small stocks are ahead again this year." (From: http://online.wsj.com/article/SB117486630727948482-search.html?KEYWORDS=karmin&COLLECTION=wsjie/6month). Analyzing any kind of historical market data should lead to the same conclusion.
This characteristic might be explained by a greater risk present while investing in small caps. However, financial research and empirical evidence seems to prove that, as Robert Strong, CFA puts it, small stocks provide a higher risk adjusted rate of return. Additionally, this outcome seems to be persistent. (See: Strong, R., Portfolio Construction, Management & Protection, 4 edition, Thompson Southwestern, 2006, p.249.). This is commonly known as: "small firm effect - The tendency for firms with low levels of capitalization to perform better than finance theory suggests they should". (From: http://websites.swlearning.com/cgi-wadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=0324232586&discipline_number=414 ). Known financial researchers, Prof. Eugene Fama and Prof. Kenneth French have researched the topic in detail, one should turn to their work for further information about it.
International diversification allows achieving a level of risk, which is approximately the half of the risk borne in a well-diversified domestic stock portfolio. Well established capital markets in Europe and Japan exhibit a similar form of market efficiency as the US markets, furthermore they do know carry excess volatility of emerging markets. Investing in small caps in developed international markets seems to be a very attractive option, carrying moderate risk and a premium risk adjusted rate of return on average, when compared with the large caps. That just brings an annoying thought that the US investors should have thought about foreign small caps earlier...
Wednesday, March 14, 2007
Digi-sue-them
The age that we are living in does not cease to amaze me. It is not about the gadgets and useful electronic devices we own. The completely new information and entertainment channels are the major achievement. Bloggers culture springs, giving a voice to virtually anyone and sites like YouTube, AOL videos, as well as similar ones supply the internet users with millions of funny, scary or just interesting clips, both long and short.
Google Inc. recognized the potential of YouTube and decides to make a move before any of the competitors did, acquiring the site for a whooping 1.7 billion $ last year. The popularity of YouTube was and still is its greatest asset, the downside of the page was that everybody could have uploaded anything desired. This means - copyrighted material was available on YouTube and intellectual property rights were violated.
The question that has risen is - how are issues like that going to be handled in the digital internet hooked society of today and tomorrow? Viacom is the owner of some of the copyrighted material viewable on YouTube. This entity's answer was a 1 billion $ lawsuit against Google Inc. Viacom's press release read, among other: "YouTube is a significant, for-profit organization that has built a lucrative business out of exploiting the devotion of fans to others' creative works in order to enrich itself and its corporate parent Google. Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws", as well as: "There is no question that YouTube and Google are continuing to take the fruit of our efforts without permission and destroying enormous value in the process. This is value that rightfully belongs to the writers, directors and talent who create it and companies like Viacom that have invested to make possible this innovation and creativity" (For the whole statement see: http://online.wsj.com/article/SB117379240271535457.html?mod=home_whats_news_us ).
In my opinion, this case bears a lot of similarity to the Napster issue. The fundamental question is: can a for-profit organization earn money advertising while offering free entertainment to internet users? There is only one catch here: the content is copyrighted, so an organization earns money using someone else’s work! On the other hand: "Google supporters say YouTube's actions simply reflect the evolution of what an Internet company does and that protections intended for Web hosts in general should apply." (From: http://online.wsj.com/article/SB117379140954435400.html?mod=home_whats_news_us ).
The fundamental difference between Napster and YouTube is the scale of the problem - there are far more YouTube users, than there were Napster users.
The lawsuit was filed after failed licensing negotiations between Google Inc. and Viacom. Viacom asked Google to remove the copyrighted content, which was apparently not done. Viacom vs. YouTube is the biggest problem, but it is not the only problem concerning copyrights of digital entertainment content. TimeWarner has similar worries about its content on YouTube, but it is willing reach a compromise with Google. Universal Music Group vs. MySpace is yet another pending big case worth mentioning (For more on all those cases, see: http://online.wsj.com/article/SB117379140954435400.html?mod=home_whats_news_us ).
The outcome of this case holds great significance. It is possible, that the way this case is resolved might set the benchmark for future issues of similar nature.
Google Inc. recognized the potential of YouTube and decides to make a move before any of the competitors did, acquiring the site for a whooping 1.7 billion $ last year. The popularity of YouTube was and still is its greatest asset, the downside of the page was that everybody could have uploaded anything desired. This means - copyrighted material was available on YouTube and intellectual property rights were violated.
The question that has risen is - how are issues like that going to be handled in the digital internet hooked society of today and tomorrow? Viacom is the owner of some of the copyrighted material viewable on YouTube. This entity's answer was a 1 billion $ lawsuit against Google Inc. Viacom's press release read, among other: "YouTube is a significant, for-profit organization that has built a lucrative business out of exploiting the devotion of fans to others' creative works in order to enrich itself and its corporate parent Google. Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws", as well as: "There is no question that YouTube and Google are continuing to take the fruit of our efforts without permission and destroying enormous value in the process. This is value that rightfully belongs to the writers, directors and talent who create it and companies like Viacom that have invested to make possible this innovation and creativity" (For the whole statement see: http://online.wsj.com/article/SB117379240271535457.html?mod=home_whats_news_us ).
In my opinion, this case bears a lot of similarity to the Napster issue. The fundamental question is: can a for-profit organization earn money advertising while offering free entertainment to internet users? There is only one catch here: the content is copyrighted, so an organization earns money using someone else’s work! On the other hand: "Google supporters say YouTube's actions simply reflect the evolution of what an Internet company does and that protections intended for Web hosts in general should apply." (From: http://online.wsj.com/article/SB117379140954435400.html?mod=home_whats_news_us ).
The fundamental difference between Napster and YouTube is the scale of the problem - there are far more YouTube users, than there were Napster users.
The lawsuit was filed after failed licensing negotiations between Google Inc. and Viacom. Viacom asked Google to remove the copyrighted content, which was apparently not done. Viacom vs. YouTube is the biggest problem, but it is not the only problem concerning copyrights of digital entertainment content. TimeWarner has similar worries about its content on YouTube, but it is willing reach a compromise with Google. Universal Music Group vs. MySpace is yet another pending big case worth mentioning (For more on all those cases, see: http://online.wsj.com/article/SB117379140954435400.html?mod=home_whats_news_us ).
The outcome of this case holds great significance. It is possible, that the way this case is resolved might set the benchmark for future issues of similar nature.
Thursday, March 1, 2007
Bleak seasons coming, or just a passing shower?
This week we have once again witnessed that the world is one global market place, and stock markets cannot be viewed in isolation. Tuesday's 9% plunge of the Chinese Shanghai index sent stocks in the US and Europe falling. Dow Jones reacted with a 400 points drop, erasing last week's record high, S&P 500 and NASDAQ also noted substantial losses. (More on that: http://online.wsj.com/article/SB117260706682921020.html and: http://blogs.wsj.com/marketbeat/2007/02/27/china-no-its-not-just-china/ ). The situation is even more serious due to the fact that Far Eastern markets, Chinese in particular have been an attractive place for US and European based capital lately. However, many have probably forgotten that this market carries high volatility along with the attractive returns.
Alan Greenspan also contributed to investors insecurity as the word recession was among the ones he used while speaking to investors in Hong Kong (More on the possible effects of this speech: http://www.ft.com/cms/s/2ad62eba-c6d1-11db-8f4f-000b5df10621.html ). Mr. Greenspan's words were interpreted as a prediction of a recession in this year. The former FED's boss's expert status added weight to the claim and certainly did not help the stock markets, which reacted severely to mixed economic data (See: http://online.wsj.com/article/SB117249340786119234.html ).
Another possible reason contributing to the drop is a apparent change in investors attitudes, which seem to change towards putting capital into less risky investments than before. (The Wall Street Journal reports on that: http://online.wsj.com/article/SB117271330926722830.html?mod=home_whats_news_us ).
Just a Shower, or the eye of the Storm?
All in all, the question rises: was this just a single event, or are encountering a bearish period? US Federal Reserve Chairman Mr. Ben Bernake came to the rescue first on Wednesday, when he confirmed his previous US economy outlook for "moderate growth" and referred to the financial markets as being "closely monitored" and "working well" (See: http://online.wsj.com/article/SB117267441551822115.html ). After that, Mr. Greenspan has down-played the tone of his previous utterance (More on that: http://online.wsj.com/article/SB117272314862823068.html ).
The US market reacted well to those news and even though they did not rise, they stopped the rapid losses, as of now all the major US indices have only very marginal losses (See: http://online.wsj.com/article/SB117275252509823347.html?mod=home_whats_news_us ). The fall in the Treasury bills price may indicate that the investors a willing to bear some risk again.
The long term question remains - are the stock market players going to be more risk averse after this weeks events? Regardless of that - if the moderate growth economic outlook holds for now, investors should be able to record gains on their securities in an intermediate time span.
Alan Greenspan also contributed to investors insecurity as the word recession was among the ones he used while speaking to investors in Hong Kong (More on the possible effects of this speech: http://www.ft.com/cms/s/2ad62eba-c6d1-11db-8f4f-000b5df10621.html ). Mr. Greenspan's words were interpreted as a prediction of a recession in this year. The former FED's boss's expert status added weight to the claim and certainly did not help the stock markets, which reacted severely to mixed economic data (See: http://online.wsj.com/article/SB117249340786119234.html ).
Another possible reason contributing to the drop is a apparent change in investors attitudes, which seem to change towards putting capital into less risky investments than before. (The Wall Street Journal reports on that: http://online.wsj.com/article/SB117271330926722830.html?mod=home_whats_news_us ).
Just a Shower, or the eye of the Storm?
All in all, the question rises: was this just a single event, or are encountering a bearish period? US Federal Reserve Chairman Mr. Ben Bernake came to the rescue first on Wednesday, when he confirmed his previous US economy outlook for "moderate growth" and referred to the financial markets as being "closely monitored" and "working well" (See: http://online.wsj.com/article/SB117267441551822115.html ). After that, Mr. Greenspan has down-played the tone of his previous utterance (More on that: http://online.wsj.com/article/SB117272314862823068.html ).
The US market reacted well to those news and even though they did not rise, they stopped the rapid losses, as of now all the major US indices have only very marginal losses (See: http://online.wsj.com/article/SB117275252509823347.html?mod=home_whats_news_us ). The fall in the Treasury bills price may indicate that the investors a willing to bear some risk again.
The long term question remains - are the stock market players going to be more risk averse after this weeks events? Regardless of that - if the moderate growth economic outlook holds for now, investors should be able to record gains on their securities in an intermediate time span.
Monday, February 19, 2007
Follow up
Over a month passed since the time I have created this blog and life has written new lines to some of the stories present in my previous posts.
Business ethics
Last week's Wall Street Journal presented a couple of interesting stories, which add to the post about unethical behavior of business professionals (http://janbartczak.blogspot.com/2007/01/when-will-they-learn.html).
Siemens seems to be in a lot of trouble as bribery allegations might overlap with a German-Russian big-time telecommunications scandal, deepening the company's problems. The case is even more severe, as the issue is clearly not only unethical, but also unlawful behavior.
An example of handling a similar issue completely differently was given with KPMG and its CEO, who decided to admit to the organizations unlawful practices and tried to eliminate such behavior. These actions apparently saved the company, which faced a threat similar to the one that destroyed Arthur Andersen a couple of years ago.
Securities market
In the post “What does the market hold for the future?” (http://janbartczak.blogspot.com/2007/01/what-does-market-hold-for-future.html), I have discussed the possible effect of various factors on the stock market.
Some time followed since then and a couple of things are clearer now. The stock market is obviously affected by the fluctuations of oil prices, and moves in such industries as the Technology Sector (which particularly holds for NASDAQ).
Through this month the Dow Jones Industrial Average showed strength, as it climbed over 12,700 points, and set yet another record in the high 700’s. It is interesting to see now, how the major indices will react to such factors as lower automobile demand, changes in real estate prices and oil price fluctuations.
Business ethics
Last week's Wall Street Journal presented a couple of interesting stories, which add to the post about unethical behavior of business professionals (http://janbartczak.blogspot.com/2007/01/when-will-they-learn.html).
Siemens seems to be in a lot of trouble as bribery allegations might overlap with a German-Russian big-time telecommunications scandal, deepening the company's problems. The case is even more severe, as the issue is clearly not only unethical, but also unlawful behavior.
An example of handling a similar issue completely differently was given with KPMG and its CEO, who decided to admit to the organizations unlawful practices and tried to eliminate such behavior. These actions apparently saved the company, which faced a threat similar to the one that destroyed Arthur Andersen a couple of years ago.
Securities market
In the post “What does the market hold for the future?” (http://janbartczak.blogspot.com/2007/01/what-does-market-hold-for-future.html), I have discussed the possible effect of various factors on the stock market.
Some time followed since then and a couple of things are clearer now. The stock market is obviously affected by the fluctuations of oil prices, and moves in such industries as the Technology Sector (which particularly holds for NASDAQ).
Through this month the Dow Jones Industrial Average showed strength, as it climbed over 12,700 points, and set yet another record in the high 700’s. It is interesting to see now, how the major indices will react to such factors as lower automobile demand, changes in real estate prices and oil price fluctuations.
Tuesday, February 13, 2007
Re-energize
The world has been dependant on fossil fuels, especially oil, as a source of energy for many decades now. What is worse, a major part of the world’s oil supply is controlled by a cartel grouping mostly Middle Eastern states, which pursue their own interests regardless of the influence they have on other countries’ economies. The rest of the world has painfully felt that during the 1973 oil crisis. To illustrate the scale of the shock that developed economies suffered, let me use this example: before the crisis West Germany had virtually no unemployment, after the crisis the rate of unemployment jumped rapidly and never returned to the pre-crisis values (See: http://www.destatis.de/indicators/e/lrarb01ae.htm ). This is only one of the many examples has the crisis shocked developed economies.
Since then, not much has changed – the world has experienced a few more oil supply shocks, and in the recent years has struggled with high oil prices, which were the effect of a combination of things. The US is the biggest consumer of oil in the world, using it mainly for gasoline and heating. The dependence on OPEC’s oil has been seen increasingly painful by the American policy makers. President George W. Bush in this year’s State of the Union Address: “Extending hope and opportunity depends on a stable supply of energy that keeps America's economy running and America's environment clean. For too long our Nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes, and to terrorists -- who could cause huge disruptions of oil shipments ... raise the price of oil ... and do great harm to our economy.” (Quoted after: http://online.wsj.com/article/SB116960205937185687-search.html?KEYWORDS=state+of+the+union&COLLECTION=wsjie/6month For comments on the Address see: http://online.wsj.com/article/SB116960576529585829-search.html?KEYWORDS=state+of+the+union&COLLECTION=wsjie/6month ).
The factors named above, as well as environmental concerns, brought up a discussion about alternative sources of energy. Unfortunately, for a long time they have been in efficient and economically unviable. The common view, which is also one that the author of this blog shares, is the following: economic effectiveness cannot be sacrificed simply because of environmental issues. This has made a large scale use of alternative energy sources a rather futuristic scenario.
Well, the future is right now. It actually seems that alternative fuel sources become cheaper and more efficient. High oil prices make it easier to achieve economic viability (For details see: http://online.wsj.com/article/SB117087922327101294.html?mod=mostpop ). This might mean that the day when energy is traded in a really free market and the oil cartel does not have a grip on the rest of the world can come very soon. Furthermore, alternative energy sources seem to be a good investment for the future which satisfies the need of many investors for a environmentally friendly policy. Hopefully in a couple of years we will be able to say “welcome to the future”.
Since then, not much has changed – the world has experienced a few more oil supply shocks, and in the recent years has struggled with high oil prices, which were the effect of a combination of things. The US is the biggest consumer of oil in the world, using it mainly for gasoline and heating. The dependence on OPEC’s oil has been seen increasingly painful by the American policy makers. President George W. Bush in this year’s State of the Union Address: “Extending hope and opportunity depends on a stable supply of energy that keeps America's economy running and America's environment clean. For too long our Nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes, and to terrorists -- who could cause huge disruptions of oil shipments ... raise the price of oil ... and do great harm to our economy.” (Quoted after: http://online.wsj.com/article/SB116960205937185687-search.html?KEYWORDS=state+of+the+union&COLLECTION=wsjie/6month For comments on the Address see: http://online.wsj.com/article/SB116960576529585829-search.html?KEYWORDS=state+of+the+union&COLLECTION=wsjie/6month ).
The factors named above, as well as environmental concerns, brought up a discussion about alternative sources of energy. Unfortunately, for a long time they have been in efficient and economically unviable. The common view, which is also one that the author of this blog shares, is the following: economic effectiveness cannot be sacrificed simply because of environmental issues. This has made a large scale use of alternative energy sources a rather futuristic scenario.
Well, the future is right now. It actually seems that alternative fuel sources become cheaper and more efficient. High oil prices make it easier to achieve economic viability (For details see: http://online.wsj.com/article/SB117087922327101294.html?mod=mostpop ). This might mean that the day when energy is traded in a really free market and the oil cartel does not have a grip on the rest of the world can come very soon. Furthermore, alternative energy sources seem to be a good investment for the future which satisfies the need of many investors for a environmentally friendly policy. Hopefully in a couple of years we will be able to say “welcome to the future”.
Wednesday, February 7, 2007
Encore
Last week an interesting news piece hit the news, but did not make a significant impact. The story was about Michael Dell returning as a CEO for Dell Inc. The company, his “child” which grew to be one of the most successful computer hardware sellers in the USA, if not in the world is struggling now. Dell’s vision and skills are supposed to be the answer.
In my opinion, he might just succeed, but I do not find the question “will he make it or not?” the most interesting aspect of the story. For me it is about another founder coming back to the business he/she created and trying to make a turnaround.
Steve Jobs of Apple, Charles Schwab of Charles Schwab Corp. are just two of the examples of how a founder can make a difference when coming back. Actually, Jobs practically save the company, revitalized it and allowed to achieve new heights. After Bill Gates stepped of at Microsoft, what followed was a turbulent time for the software giant, with greater competition on the account of Linux and tons of anti-monopolistic law suits. This resulted in a drop in stock price after 2000 (See: http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?symb=msft&vsc_appId=ts&ftsite=FTCOM&searchtype=equity&searchOption=equity ), which in turn resulted in Mr. Gates running Microsoft actively again.
Can it be a start of a nation-wide trend? The Wall Street Journal informs there have been 65 such “encores” in USA biggest 1500 companies in the last dozen of years (More on this story: http://online.wsj.com/article/SB117063556472497775.html ). Of course, not every such return is a stunning success, but most of the time you only hear about those that are.
I feel there might be something to it – the rules: “no one knows this company better than the founder”, and “if you want to have something done right, do it yourself” could very well apply…
In my opinion, he might just succeed, but I do not find the question “will he make it or not?” the most interesting aspect of the story. For me it is about another founder coming back to the business he/she created and trying to make a turnaround.
Steve Jobs of Apple, Charles Schwab of Charles Schwab Corp. are just two of the examples of how a founder can make a difference when coming back. Actually, Jobs practically save the company, revitalized it and allowed to achieve new heights. After Bill Gates stepped of at Microsoft, what followed was a turbulent time for the software giant, with greater competition on the account of Linux and tons of anti-monopolistic law suits. This resulted in a drop in stock price after 2000 (See: http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?symb=msft&vsc_appId=ts&ftsite=FTCOM&searchtype=equity&searchOption=equity ), which in turn resulted in Mr. Gates running Microsoft actively again.
Can it be a start of a nation-wide trend? The Wall Street Journal informs there have been 65 such “encores” in USA biggest 1500 companies in the last dozen of years (More on this story: http://online.wsj.com/article/SB117063556472497775.html ). Of course, not every such return is a stunning success, but most of the time you only hear about those that are.
I feel there might be something to it – the rules: “no one knows this company better than the founder”, and “if you want to have something done right, do it yourself” could very well apply…
Tuesday, January 30, 2007
Finally taking off?
Most airlines operating (both domestically and internationally) in the USA had a hard time through the last couple of years. The year 2000 has been the last good one for the airline industry. Since then the events of 9/11 took place, oil prices shot up, which in effect left most of the airlines in the red since then.
There was another reason for the air carriers' problems, which is easily overseen because of the obvious ones I have just named above. The passengers’ attitudes and needs changed. They did not feel like they needed the service major airlines offered for the premium price, but rather fast and reliable travel and most of all: cheap. The customers needed service such as Southwest Airlines provides. SWA was the only big airline that stayed profitable all the time from 2000 through now.
The competition understood that finally. It took them a lot of layoffs, Chapter 11's etc., but they finally grasped the facts. After that, it became a struggle to increase operational efficiency, be leaner and faster... and, guess what? It seems that this corporate turnaround is successful, as many airlines' figures where in the black for 2006. The drop in oil prices also help the carriers, lowering there cost (The profit data and more on that: http://online.wsj.com/article/SB117010210807591473.html?mod=home_whats_news_us ).
In this pretty optimistic picture, there is a concern. Airlines stocks fell today, as Saudi Arabia cut down its oil production, sending the crude oil price up. The question remains, whether the major airlines will be able to sustain their profitability in the coming months regardless to the oil prices fluctuation.
There was another reason for the air carriers' problems, which is easily overseen because of the obvious ones I have just named above. The passengers’ attitudes and needs changed. They did not feel like they needed the service major airlines offered for the premium price, but rather fast and reliable travel and most of all: cheap. The customers needed service such as Southwest Airlines provides. SWA was the only big airline that stayed profitable all the time from 2000 through now.
The competition understood that finally. It took them a lot of layoffs, Chapter 11's etc., but they finally grasped the facts. After that, it became a struggle to increase operational efficiency, be leaner and faster... and, guess what? It seems that this corporate turnaround is successful, as many airlines' figures where in the black for 2006. The drop in oil prices also help the carriers, lowering there cost (The profit data and more on that: http://online.wsj.com/article/SB117010210807591473.html?mod=home_whats_news_us ).
In this pretty optimistic picture, there is a concern. Airlines stocks fell today, as Saudi Arabia cut down its oil production, sending the crude oil price up. The question remains, whether the major airlines will be able to sustain their profitability in the coming months regardless to the oil prices fluctuation.
Thursday, January 25, 2007
The bigger they are...
Ford Motor Company is one of the oldest, and historically one of the most successful American auto manufacturers. "Historically" is the key term here. Ford has been loosing money for years now, and its stock has price steadily declined. It is now near the 8$ value, a mere 1/5 of what it was just in 1998 (For Ford's stock chart see: http://mwprices.ft.com/custom/ft2-com/html-interactivecharting.asp?osymb=F&ocountrycode=&expanded=true&subtab=1&colMode=&pageNum=&company=NEW&industry=&region=&extelID=&isin=&ftep=&sedol=34537086&FTSite=FTCOM&symb=F&countrycode=&t=e&s2=&q=F&time=3yr&freq=1dy&compidx=SP500%7E3377&indName=aaaaa%7E0&sid=205397&ma=0&maval=9&uf=0&lf=1&type=8&lf2=0&lf3=0&comp1=&comp2=&comp3= )
Today Ford announced whooping 5.8$ Bln Q4 loss, totaling its 2006 loss to 12.7$ Bln, making it the biggest loss in the company's history. These figures are attributed to major decline in global auto sales, as well as high costs of a painful restructuring process that Ford is undergoing (More on that: http://biz.yahoo.com/ap/070125/earns_ford.html?.v=28 ).
Ford is not the only auto manufacturing giant in trouble, as the rest of the US "big three" GM and Chrysler (a division of DaimlerChrysler) also struggle. The Wall Street Journal reports that GM and Ford cut down more than 70,000 jobs in 2006. Their oversea Far East based competitors (like Toyota, Honda and Hyundai) are giving the American auto makers a hard time.
With such a serious situation, the domestic manufacturers are looking towards the government for help. It seems that this time, they actually might get help. In his annual "State of the Union" address the President announced a few policy elements that could be of great help for the American auto industry. The new energy policy and possible obligation to use alternative fuels such as ethanol should give the domestic auto makers some edge over the competition. On top of that, a possible reform of the health care system could lower the costs that the big three carries in employees benefits and health care plans (The whole story on that: http://online.wsj.com/article/SB116969452776887202.html?mod=home_whats_news_us ).
The question is, whether the automakers are going to be able to take advantage of this and build on it to successfully compete with oversea competition. The forecasts for the auto industry in 2007 are supposedly better than for 2006, the next months will show how Ford and GM use those opportunities.
Today Ford announced whooping 5.8$ Bln Q4 loss, totaling its 2006 loss to 12.7$ Bln, making it the biggest loss in the company's history. These figures are attributed to major decline in global auto sales, as well as high costs of a painful restructuring process that Ford is undergoing (More on that: http://biz.yahoo.com/ap/070125/earns_ford.html?.v=28 ).
Ford is not the only auto manufacturing giant in trouble, as the rest of the US "big three" GM and Chrysler (a division of DaimlerChrysler) also struggle. The Wall Street Journal reports that GM and Ford cut down more than 70,000 jobs in 2006. Their oversea Far East based competitors (like Toyota, Honda and Hyundai) are giving the American auto makers a hard time.
With such a serious situation, the domestic manufacturers are looking towards the government for help. It seems that this time, they actually might get help. In his annual "State of the Union" address the President announced a few policy elements that could be of great help for the American auto industry. The new energy policy and possible obligation to use alternative fuels such as ethanol should give the domestic auto makers some edge over the competition. On top of that, a possible reform of the health care system could lower the costs that the big three carries in employees benefits and health care plans (The whole story on that: http://online.wsj.com/article/SB116969452776887202.html?mod=home_whats_news_us ).
The question is, whether the automakers are going to be able to take advantage of this and build on it to successfully compete with oversea competition. The forecasts for the auto industry in 2007 are supposedly better than for 2006, the next months will show how Ford and GM use those opportunities.
Monday, January 22, 2007
Let's talk drugs.
Today's news included a couple of interesting reports from some of the pharmaceutical industry giants. The outlook for the companies mentioned is rather mixed and predicting some serious trouble lying ahead of them.
Pfizer, the world’s largest pharmaceutical company (probably most known for the common public because of Viagra, which got a great share of media attention in its time) seems to be struggling greatly. Stiffening competition from makers of generic drugs and patent expirations are accounted for most of the trouble (See: http://biz.yahoo.com/ap/070122/pfizer_restructuring.html?.v=43 ). However, one should not miss that this drug maker's business environment just shares the notion that its products are overpriced, just not worth the great deal of money that is on the price tag. This is a problem that might not be as easy to solve, as those, call them "technical" trouble named above.
Pfizer's first reaction was the announcement of cutting around 10,000 jobs, and closing a couple of R&D and the production facilities. The goal of the CEO Jeffrey Kindler is to achieve a much leaner structure and: "maximize revenue, cut cost, simplify structure, improve communications, trim the fat" (From: http://online.wsj.com/article/SB116946650860883613.html?mod=home_whats_news_us ).
Meanwhile, another pharmaceutical titan Bristol-Myers Squibb is involved in a high-stake court case over the exclusive rights to the hit drug Plavix. The drug is reported to generate 4Bln $ revenue for the drug maker in 2005 alone. That fully underlines a possible impact of loosing in court. Still even if the company wins its case, it will still face competition from the generic version of Plavix. Fortunately for Bristol-Myers Squibb, unlike Pfizer, this drug maker does not face any major patent expires in the next couple of years (More on the story: http://online.wsj.com/article/SB116932062100782781.html?mod=home_whats_news_us )
The future for both of these companies is a big unknown. Regardless of the work that they have to do in the intermediate terms, the drug manufacturers must prove that they creating so much value with its drugs, to justify its prices. Otherwise, the future might be bleak for them.
Pfizer, the world’s largest pharmaceutical company (probably most known for the common public because of Viagra, which got a great share of media attention in its time) seems to be struggling greatly. Stiffening competition from makers of generic drugs and patent expirations are accounted for most of the trouble (See: http://biz.yahoo.com/ap/070122/pfizer_restructuring.html?.v=43 ). However, one should not miss that this drug maker's business environment just shares the notion that its products are overpriced, just not worth the great deal of money that is on the price tag. This is a problem that might not be as easy to solve, as those, call them "technical" trouble named above.
Pfizer's first reaction was the announcement of cutting around 10,000 jobs, and closing a couple of R&D and the production facilities. The goal of the CEO Jeffrey Kindler is to achieve a much leaner structure and: "maximize revenue, cut cost, simplify structure, improve communications, trim the fat" (From: http://online.wsj.com/article/SB116946650860883613.html?mod=home_whats_news_us ).
Meanwhile, another pharmaceutical titan Bristol-Myers Squibb is involved in a high-stake court case over the exclusive rights to the hit drug Plavix. The drug is reported to generate 4Bln $ revenue for the drug maker in 2005 alone. That fully underlines a possible impact of loosing in court. Still even if the company wins its case, it will still face competition from the generic version of Plavix. Fortunately for Bristol-Myers Squibb, unlike Pfizer, this drug maker does not face any major patent expires in the next couple of years (More on the story: http://online.wsj.com/article/SB116932062100782781.html?mod=home_whats_news_us )
The future for both of these companies is a big unknown. Regardless of the work that they have to do in the intermediate terms, the drug manufacturers must prove that they creating so much value with its drugs, to justify its prices. Otherwise, the future might be bleak for them.
Wednesday, January 17, 2007
What does the market hold for the future?
The last couple of months have been very good for the stock market, especially the Dow Jones Industrial Average (DJIA), which broke its index record set in the year 2000 and went on over the value of 12,000 points, hitting new record highs on a regular basis.
The DJIA's blue chips are among the stocks pulling the market up, as it has been closing at new all time highs for most of the time in January 2007. Another factor contributing to the rise in stock prices is the very good performance of the financial sector. Examples would be, among other, companies such as JP Morgan, achieving a whooping 68% rise in net income in Q4, comparing with Q4 2005 (More on that: http://online.wsj.com/article/SB116903511859878854.html?mod=home_whats_news_us ), or Merrill Lynch, taking advantage of the strength of the financial marketing in the concluding months of 2006 (More details on this story: http://online.wsj.com/public/resources/documents/info-earn06q4.html ).
The worries about the rising inflation have offset the strong performance of the sector (Details: http://biz.yahoo.com/ap/070117/wall_street.html?.v=33 ). The Tech sector's fall also contributed to what is shaping up to be a pretty weak day on the security markets.
The above concerns do not change the big picture though. Falling oil prices should loosen up the inflation pressure, and the Fed officials feel than can handle inflation and bring it down. Meanwhile, as the MarketBeat blog is stating, the predictions for the global economy are getting more positive (http://blogs.wsj.com/marketbeat/2007/01/17/the-future-looks-bright/ ). The US economy seems to be entering 2007 in good condition, quote: "Most reports ... indicated that economic activity expanded at a moderate pace," the Federal Reserve said (From: http://biz.yahoo.com/ap/070117/fed_economy.html?.v=8 ).
To sum up, it seems that despite some minor problems, the intermediate outlook for the economy looks promising. The question is, how is the market going to incorporate those news.
The DJIA's blue chips are among the stocks pulling the market up, as it has been closing at new all time highs for most of the time in January 2007. Another factor contributing to the rise in stock prices is the very good performance of the financial sector. Examples would be, among other, companies such as JP Morgan, achieving a whooping 68% rise in net income in Q4, comparing with Q4 2005 (More on that: http://online.wsj.com/article/SB116903511859878854.html?mod=home_whats_news_us ), or Merrill Lynch, taking advantage of the strength of the financial marketing in the concluding months of 2006 (More details on this story: http://online.wsj.com/public/resources/documents/info-earn06q4.html ).
The worries about the rising inflation have offset the strong performance of the sector (Details: http://biz.yahoo.com/ap/070117/wall_street.html?.v=33 ). The Tech sector's fall also contributed to what is shaping up to be a pretty weak day on the security markets.
The above concerns do not change the big picture though. Falling oil prices should loosen up the inflation pressure, and the Fed officials feel than can handle inflation and bring it down. Meanwhile, as the MarketBeat blog is stating, the predictions for the global economy are getting more positive (http://blogs.wsj.com/marketbeat/2007/01/17/the-future-looks-bright/ ). The US economy seems to be entering 2007 in good condition, quote: "Most reports ... indicated that economic activity expanded at a moderate pace," the Federal Reserve said (From: http://biz.yahoo.com/ap/070117/fed_economy.html?.v=8 ).
To sum up, it seems that despite some minor problems, the intermediate outlook for the economy looks promising. The question is, how is the market going to incorporate those news.
Tuesday, January 16, 2007
When will they learn?
Business people are not very well perceived by the general public when it comes to judging about their professional integrity. The common perception is that they take advantage of the information asymmetry and abuse the privileged position that they have over the external stakeholders. Events such as the Enron and WorldCom scandals seem to support this judgment.
In my opinion, the common view of the business people is biased by those few who break the rules and abuse the trust and harm the interests of their own clients/shareholders for personal financial gain. That does not change the fact that this minority gives a whole wide profession a bad name.
Countless courses in business ethics, which are by now offered at virtually every business school in the country and various publications address that issue. Government regulations are designed to eliminate the possibility of frauds and unethical behavior. Courts prosecute those suspected of unlawful behavior.
Does it mean that unethical behavior can be completely rooted out from the world of business professionals? Last weeks news reports conclude just the contrary.
Legal authorities in the U.S. investigate the back-dating case of Apple Inc options, as it seems that the computer industry giant may be in some trouble. The issue is that options were backdated, which changed their value, this was supposed to be approved on a special board meeting... that never took place. (More on that case: http://online.wsj.com/article/SB116856838800274709-search.html?KEYWORDS=apple+&COLLECTION=wsjie/6month ). The news about the investigation hurt the Apple stock price, offsetting part of the rise reported after the company announced the introduction of iPhone.
In a different case, Europe's largest engineering company, Siemens, ran in trouble as its the former CFO and No. 2 in the corporate hierarchy was named a suspect in the on-going German police investigation of a bribery case, amounting to at least half a billion dollar (more on that: http://online.wsj.com/article/SB116861598934275269-search.html?KEYWORDS=siemens&COLLECTION=wsjie/6month ).
Even though only a marginal proportion of business professional engages such unlawful practices as the ones named above, their actions influence the way the whole sector is perceived. The funniest thing about it is that usually people who commit such crimes are caught and prosecuted - it is just to hard to destroy all the data pointing to them as culprits. Still, it happens over and over again, hurting individuals, companies and whole professions. When will they finally learn it?
In my opinion, the common view of the business people is biased by those few who break the rules and abuse the trust and harm the interests of their own clients/shareholders for personal financial gain. That does not change the fact that this minority gives a whole wide profession a bad name.
Countless courses in business ethics, which are by now offered at virtually every business school in the country and various publications address that issue. Government regulations are designed to eliminate the possibility of frauds and unethical behavior. Courts prosecute those suspected of unlawful behavior.
Does it mean that unethical behavior can be completely rooted out from the world of business professionals? Last weeks news reports conclude just the contrary.
Legal authorities in the U.S. investigate the back-dating case of Apple Inc options, as it seems that the computer industry giant may be in some trouble. The issue is that options were backdated, which changed their value, this was supposed to be approved on a special board meeting... that never took place. (More on that case: http://online.wsj.com/article/SB116856838800274709-search.html?KEYWORDS=apple+&COLLECTION=wsjie/6month ). The news about the investigation hurt the Apple stock price, offsetting part of the rise reported after the company announced the introduction of iPhone.
In a different case, Europe's largest engineering company, Siemens, ran in trouble as its the former CFO and No. 2 in the corporate hierarchy was named a suspect in the on-going German police investigation of a bribery case, amounting to at least half a billion dollar (more on that: http://online.wsj.com/article/SB116861598934275269-search.html?KEYWORDS=siemens&COLLECTION=wsjie/6month ).
Even though only a marginal proportion of business professional engages such unlawful practices as the ones named above, their actions influence the way the whole sector is perceived. The funniest thing about it is that usually people who commit such crimes are caught and prosecuted - it is just to hard to destroy all the data pointing to them as culprits. Still, it happens over and over again, hurting individuals, companies and whole professions. When will they finally learn it?
Friday, January 12, 2007
Steve Jobs does it again
The founder of Apple Computer, Steve Jobs is a very well known figure in the high-tech industry, and the whole business world. His life story is pretty inspirational – he founded an extremely successful computer company back in the 1980’s, and a couple of years after parting ways with it, he was brought back at the helm, and turned the struggling business into a cash cow. He has achieved even more – Mac computers were made hip again, and iPod became a part of the popular culture.
In the last couple of days, Jobs and Apple got a lot of media attention again. News of the iPhone electrified the technology and business world, bringing Apple stock prices to an impressive high.
The iPhone follows the trend present in the mobile technologies sector in the last couple of years – more and more integrated features. “The device, priced up to $599 in addition to a two-year cellular service contract, allows users to download and play iTunes music, browse the Web, send email and make calls. Equipped with a wide screen and a two-megapixel camera it can also link wirelessly to music headsets, stereo systems and Wi-Fi networks.” (From: the Wall Street Journal online, by LI YUAN and PUI-WING TAM, http://online.wsj.com/article/SB116836172312771508-search.html?KEYWORDS=Apple+Storms+Cellphone+Field&COLLECTION=wsjie/6month ).
The above named characteristics are not really something revolutionary; other cell phone manufacturers have already produced phones with similar qualities. The key to Apples potential success is not being innovative in this case. It rather is being better than the innovators and offering an appealing design, as it was in the case of the iPod. Most commentaries that I have read, agree that this project will probably be successful, especially that Apple should have a reliable distribution channel in Cingular Wireless.
One thing that is mostly overlooked by the media is the totally different mindset presented by Jobs – it is not Apple Computers Inc anymore, it is just Apple Inc, which underlines the company’s focus that is not just limited to computers, but it is rather moving away from the image of a computer company.
Jobs seems to be very confident, or even cheeky – he scheduled the Mac World Expo at the same time as the Consumer Electronics Show, and actually managed to grab most of the media attention! The iPhone has chances of becoming a phenomenon such as the iPod, which means the future might be looking bright for Mr. Jobs and Apple, and pretty bleak for it competitors.
In the last couple of days, Jobs and Apple got a lot of media attention again. News of the iPhone electrified the technology and business world, bringing Apple stock prices to an impressive high.
The iPhone follows the trend present in the mobile technologies sector in the last couple of years – more and more integrated features. “The device, priced up to $599 in addition to a two-year cellular service contract, allows users to download and play iTunes music, browse the Web, send email and make calls. Equipped with a wide screen and a two-megapixel camera it can also link wirelessly to music headsets, stereo systems and Wi-Fi networks.” (From: the Wall Street Journal online, by LI YUAN and PUI-WING TAM, http://online.wsj.com/article/SB116836172312771508-search.html?KEYWORDS=Apple+Storms+Cellphone+Field&COLLECTION=wsjie/6month ).
The above named characteristics are not really something revolutionary; other cell phone manufacturers have already produced phones with similar qualities. The key to Apples potential success is not being innovative in this case. It rather is being better than the innovators and offering an appealing design, as it was in the case of the iPod. Most commentaries that I have read, agree that this project will probably be successful, especially that Apple should have a reliable distribution channel in Cingular Wireless.
One thing that is mostly overlooked by the media is the totally different mindset presented by Jobs – it is not Apple Computers Inc anymore, it is just Apple Inc, which underlines the company’s focus that is not just limited to computers, but it is rather moving away from the image of a computer company.
Jobs seems to be very confident, or even cheeky – he scheduled the Mac World Expo at the same time as the Consumer Electronics Show, and actually managed to grab most of the media attention! The iPhone has chances of becoming a phenomenon such as the iPod, which means the future might be looking bright for Mr. Jobs and Apple, and pretty bleak for it competitors.
Thursday, January 11, 2007
Unusually mild winter brings oil prices down
This year’s winter has been surprisingly mild so far. The effects of the surprisingly warm weather have a significant impact on the economy, one that is hard to oversee now.
The mild weather caused a dramatic decrease in the usage of oil used for heating as well as in the usage of natural gas. A plunge in the stock market oil prices has followed. The Wall Street Journal reported that oil prices reached a 19 month low yesterday, hitting around 54 $ for a barrel ( http://online.wsj.com/article/SB116844625784572707-search.htmlKEYWORDS=oil+prices&COLLECTION=wsjie/6month).
This seems to be good news for the whole U.S. economy, as well as for the U.S. consumers. The low oil prices mean lower transportation, logistics and production costs for many industries. It should also give a good mood to the millions of American car drivers, as gas prices might fall in the close future.
On the other hand, this phenomenon is causing problems for the energy sector companies in the USA, as well as for OPEC, as they see their profits plunging. There is a dual negative effect on American energy companies. First of all, it cuts down the sector's profits. Chevron already announced that the decline in crude oil prices will indeed hurt its upcoming quarter profits (http://online.wsj.com/article/SB116848607242073432-search.html?KEYWORDS=chevron&COLLECTION=wsjie/6month). Furthermore, the energy companies have a bad press, as people get worried that the unusually warm weather is an effect of the global warming, and yes, the energy sector is the first one to blame. This forced the industries giant Exxon to agree on talks about limits for the gas emissions which are supposed to be one of the causes of global warming (http://blogs.wsj.com/washwire/2007/01/11/exxon-warns-to-greenhouse-dialogue/).
OPEC will probably react with a decrease in oil production in the coming days to boost up the oil prices, but in the mean time, U.S. consumers may enjoy the effects of the decrease in oil prices.
The mild weather caused a dramatic decrease in the usage of oil used for heating as well as in the usage of natural gas. A plunge in the stock market oil prices has followed. The Wall Street Journal reported that oil prices reached a 19 month low yesterday, hitting around 54 $ for a barrel ( http://online.wsj.com/article/SB116844625784572707-search.htmlKEYWORDS=oil+prices&COLLECTION=wsjie/6month).
This seems to be good news for the whole U.S. economy, as well as for the U.S. consumers. The low oil prices mean lower transportation, logistics and production costs for many industries. It should also give a good mood to the millions of American car drivers, as gas prices might fall in the close future.
On the other hand, this phenomenon is causing problems for the energy sector companies in the USA, as well as for OPEC, as they see their profits plunging. There is a dual negative effect on American energy companies. First of all, it cuts down the sector's profits. Chevron already announced that the decline in crude oil prices will indeed hurt its upcoming quarter profits (http://online.wsj.com/article/SB116848607242073432-search.html?KEYWORDS=chevron&COLLECTION=wsjie/6month). Furthermore, the energy companies have a bad press, as people get worried that the unusually warm weather is an effect of the global warming, and yes, the energy sector is the first one to blame. This forced the industries giant Exxon to agree on talks about limits for the gas emissions which are supposed to be one of the causes of global warming (http://blogs.wsj.com/washwire/2007/01/11/exxon-warns-to-greenhouse-dialogue/).
OPEC will probably react with a decrease in oil production in the coming days to boost up the oil prices, but in the mean time, U.S. consumers may enjoy the effects of the decrease in oil prices.
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